It is always with excitement that we at RGA review the results of one of our regular benchmarking surveys.
One might think that after several years of conducting the same survey, results might be predictable. However, interesting and even surprising trends can frequently emerge, and the results of our most recent Group Life, LTD and Critical Illness Insurance Non-Evidence Limits/Overall Maximums survey, are no exception.
In employee benefits, non-evidence limits (NELs) refer to the highest amounts of life, long-term disability and critical illness coverage a plan participant can receive without providing medical evidence. Overall maximums refer to the highest available monthly benefit amounts plan participants can receive if they provide medical evidence.
NELs (sometimes also referred to as non-evidence maximums, or NEMs) as well as overall maximums are important elements in group benefit policies, as they impact how policy benefits are priced, the quote’s overall competitiveness, and even the group’s experience. Indeed, when existing or new groups submit their Request for Proposals, a frequent request is to quote the highest possible NELs and overall maximums.
High NELs and overall maximums can benefit groups in two ways. They permit as many employees in a group as possible to receive a full benefit without needing to provide medical evidence. As benefit amounts are generally determined by salaries, higher NELs also mean more members can receive full benefits over the course of several salary increases before being required to submit medical evidence for sufficient cover.
However, higher NELs and overall maximums can also mean more risk to carriers. The higher the NELs, the higher the likelihood that an employee group’s substandard risks do not have to submit medical evidence to obtain full benefits.
Regardless of the current maximum (or maximums) for a given group, many carriers will offer their highest maximums to be competitive.
Since 2003, RGA Canada has been conducting periodic surveys of group carrier NELs and maximums. These surveys provide information on NEL and overall maximum trends for Canadian carriers, to help them benchmark against how other insurers set their NELs and maximums and assess how trends are evolving.
Over time, the survey’s framework has been enhanced to better reflect Canadian insurers’ actual NEL and overall maximum tables. In 2014, the reporting structure was changed to aggregate data for a range of group sizes and average certificate face amounts rather than basing it solely on total eligible life ranges, which can vary from carrier to carrier.
Our most recent survey, conducted in late 2016 with 15 participating carriers, featured further framework enhancements. More average certificate amount choices were added to basic life, LTD and CI NELs and overall maximums, and questions were added to ask participants if any were offering NELs for optional (voluntary) life and optional CI – products for which medical evidence is typically required. Larger sample case scenario sizes were also added in order to provide segment results for groups of 7,500 and 10,000 lives.
The survey found that most NELs and overall maximums are in a comparable range. A few insurers had maximums in specific categories that were outliers (much higher than the rest of the survey participants), and those responses were removed in order not to skew the results.
NELs and overall maximums for life and LTD in the aggregate did not increase significantly from 2014 to 2016.
For group life, NELs increased 6% to 12% depending on face amount, and overall maximums were virtually unchanged (1% increase). This indicates insurers believe they are setting appropriate overall maximums, which tend to be established purely by group size and do not take into consideration average certificate amounts.
For group LTD, greater NEL increases were seen for groups of more than 2,500 lives with average certificate amounts of $3,000 (6% increase for 2,500 lives and 7% increase for 5,000 lives, as compared to 3% increase on average). Smaller increases in other segments – both group size and certificate amount – suggest that insurers are raising their LTD NELs and overall maximums to keep up with cost of living salary increases.
Mean LTD overall maximums also increased 3% to 5% on average, depending on face amount, but varied by group size. The greatest increases were seen in groups of 25 or fewer lives for $1,500 and $3,000 average certificates (6% to 8% increase) and groups of 2,500 to 5,000 lives with average certificates of $3,000 (9% increase, compared to 5% increase on average).
LTD experience results continue to be challenging for many Canadian insurers, as the highly competitive benefits market makes it difficult to charge the appropriate premiums. It would appear from the 2016 survey results that insurers are taking a conservative approach to increasing LTD NELs overall, but a stronger one to increasing overall maximums for small groups – possibly to target the small group market.
For CI NELs and overall maximums, trends were substantially different: sizable changes were noted for both since the 2014 survey. The trends, however, were in line with the Canadian CI market’s growth and evolution. In 2014, for example, none of the insurers surveyed reported in-force premium volume exceeding $10 million per year, whereas in 2016, three survey participants reported more than $10 million of in-force premium.
Over the past two years, group CI NELs for basic coverage increased 21% to 28% on average depending on face amount, while changes in overall maximums varied both by group size and insurers. For example, in groups of 300 lives, overall CI maximums ranged widely, from $50,000 to $500,000.
Until recently, for example, insurers would offer optional life and CI cover without medical evidence on a limited case-by-case basis. Now, non-evidence limits for optional life and optional CI products have become standard practice for some insurers. However, as evidenced in the 2016 survey results, optional life overall maximums still range between $250,000 and $500,000, unchanged from the 2014 survey.
Another interesting survey finding was that even though Canada’s group benefit providers are hungry for business, because of the risk, almost half of participating insurers reported they had declined a group because they would not grandfather maximums for life products, slightly more than one-third declined for group LTD for the same reason, and about one-quarter declined for group CI.
NELs and overall maximums continue to be important pricing elements for group benefit plans. Insurers are adjusting their life and LTD tables, but for the most part, the changes were not significant (<10%).
Over the past two years, a trend uncovered by the survey was that more insurers have begun to offer NELs for optional products as a standard feature. We also noted that group CI’s substantial momentum in the Canadian market is being matched by rapid evolution of carrier NELs and overall maximums.
Anecdotally, one interesting market trend we have also noticed is that insurers appear to be reviewing their non-evidence and overall limits approximately every two years – more frequently than in the past.
My parting thoughts? As NELs and overall maximums are tools that can help insurers control risk, insurers would do well to analyze all current NELs and overall maximums and how changes might impact experience and pricing. When insurers review their NELs and overall maximum tables to determine increases, they should also make sure their premiums support the NEL and overall maximum increases.